Last year was a history-maker for Social Security. In May 2025, the average monthly retired-worker benefit topped $2,000 for the first time since the program’s inception.
But America’s leading retirement program has an opportunity to etch its name in the history books for a second year in a row, based on early cost-of-living adjustment (COLA) estimates for 2027. With up to 90% of retirees leaning on their Social Security income, in some capacity, to cover their expenses, a first-in-30-year event would be welcome news.
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What is Social Security’s COLA, and how is it determined?
In simple terms, Social Security’s cost-of-living adjustment is the near-annual change to benefits that attempts to mirror the effects of inflation (rising prices).
For example, let’s say a large basket of goods and services regularly purchased by seniors increases in price by 3% from one year to the next. If Social Security benefits remained static, seniors wouldn’t be able to buy the same amount of goods and services as last year (i.e., a loss of buying power). Social Security’s COLA is designed to keep benefits in line with inflation.
Since 1975, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) has served as the program’s inflation-measuring yardstick. The CPI-W has over 200 spending categories, each with unique percentage weightings that allow this index to be whittled down to a single figure each month.
Although the CPI-W is reported monthly, only trailing 12-month readings ending in July, August, and September (the third quarter) factor into the COLA calculation. If the average third-quarter (Q3) CPI-W reading is higher this year than in the comparable period of the previous year, inflation has occurred, meaning beneficiaries will receive a “raise” for the upcoming year.
The year-over-year percentage increase in Q3 CPI-Ws, rounded to the nearest tenth of a percent, equates to the COLA that beneficiaries receive. It’s that simple.
Higher inflation over the last five years has led to above-average COLAs. US Inflation Rate data by YCharts.
Who’s ready for a history-making 2027 Social Security cost-of-living adjustment?
Although we’re still six months away from the Social Security Administration announcing the 2027 COLA, several independent (i.e., non-official) estimates have been made and adjusted following the release of monthly inflation reports by the U.S. Bureau of Labor Statistics.
Nonpartisan senior advocacy group The Senior Citizens League (TSCL) kept its 2027 COLA forecast unchanged for a third consecutive month at 2.8% following the release of the March inflation report. Meanwhile, independent Social Security and Medicare policy analyst Mary Johnson nearly doubled her 2027 COLA projection to 3.2% from 1.7% in the previous month.
Johnson’s cost-of-living adjustment forecast shot higher due to the effects of the Iran war. Iran’s closure of the Strait of Hormuz to most oil exports sent crude oil prices and energy expenses in the U.S. skyrocketing. The trailing 12-month inflation rate in March jumped 90 basis points to 3.3% from the previous month.
If either of these independent estimates (2.8% or 3.2%) proves accurate, it would mark a continuation of above-average COLAs for Social Security beneficiaries. Over the last five years (2022-2026), payouts have increased by 5.9%, 8.7%, 3.2%, 2.5%, and 2.8%, respectively. The 8.7% raise in 2023 was the largest on a percentage basis in 41 years.
A 2.8% or 3.2% COLA would also mark the sixth straight year with at least a 2.5% increase to benefits. The last time Social Security payouts grew by at least 2.5% for six consecutive years was from 1988 through 1997. Based on how independent estimates are tracking, due to uncertainties tied to the Iran war, Social Security’s 2027 COLA is on pace to do something that hasn’t been observed since 1997.
Image source: Getty Images.
A Social Security dollar isn’t what it used to be
While retirees are undoubtedly enjoying the above-average nominal dollar raises they’ve received in each of the last five years, the unfortunate reality is that Social Security COLAs haven’t kept up with the inflationary pressures that many seniors are facing.
The issue with Social Security’s inflationary yardstick lies in its name: the Consumer Price Index for Urban Wage Earners and Clerical Workers. Though 87% of Social Security beneficiaries were age 62 and older as of December 2024, the CPI-W is tracking the spending habits and cost pressures of urban wage earners and clerical workers. These are primarily working-age Americans who aren’t currently receiving a retired-worker benefit.
Furthermore, seniors spend a higher percentage of their monthly budget on shelter and medical care services than working-age Americans do. The CPI-W doesn’t account for this.
According to an analysis by TSCL, the purchasing power of Social Security income plunged by 20% from 2010 to 2024. In other words, what $100 in Social Security income purchased in 2010 could only buy $80 worth of those same goods and services by 2024.
Even though Social Security cost-of-living adjustments have been above average for five consecutive years (and possibly a sixth), the expenses that matter most to seniors, including shelter and medical care services, are sporting stubbornly high trailing 12-month inflation rates.
Regardless of whether Social Security’s COLA makes history next year, a Social Security dollar simply isn’t what it used to be — and a 2.8% or 3.2% raise isn’t going to change this dynamic.
